GREAT insights Magazine

Madagascar: Laying Foundations for Extractive Industries

Madagascar has become symptomatic of the conditions in which the extractive sector develops in vulnerable countries following the arrival of foreign investors. Lessons learned deserve special attention and must be shared with other countries in order to find the right approach. On the whole, current operations are subject to the demands of globalisation, national policies and local issues, not to mention the wishes of countless natural and legal persons with private interests. ‘Societal’ initiatives generally seem to take the form of marketing operations aimed at turning authorities and/or the population against critics. The unresponsiveness of Madagascans in the face of injustice can be interpreted quite simply as submission or resignation due to a lack of reference points. Undermined and made fickle by the massive influx of new money, public authorities, meanwhile, can no longer play the role expected of them. Members of civil society have become providers who can be requisitioned at any given time. Certain company executives display an arrogance of having a monopoly on the truth. Particularly alarming, however, is that such behaviour seems to be becoming the norm for other operators in the extractive sector in Madagascar. Until proven otherwise, a mining operator is a ‘guest’ in residence for a limited time.

But what of Madagascar today?

Once again, the massive influx of capital does not automatically guarantee social peace or an improvement in the well-being of the population. Rather, it creates illusions, as in all countries suffering from a democratic deficit. Taking advantage of this situation, benefiting from the support of international financial institutions with significant financial leverage to influence public decision-making, mining companies receive special tax treatment and eased conditions for setting up their operations (involving administrative authorisations, land use, the destruction of tropical rainforests, etc.). ‘Social and environmental responsibility’ initiatives are now part of the arsenal required to obtain ‘operating permits’ and international funding. Presenting a ‘shopping list’ of projects, inhabitants are actually reduced to behaving like beggars. Significant sums are – without any kind of democratic control – dedicated to sponsorship operations and to piecemeal projects seeking to meet the varying, and sometimes contradictory, demands of the public, whose opinion is, by its very nature, in a state of flux.

Examining Dr Wilfred Lombe’s figures(1), which clearly speak for themselves, we see that ‘in 2010, mining companies’ revenues increased by 32%, and their net earnings by 156%. At the same time, tax paid to states increased by only 6%.’ In addition to tax benefits, companies take advantage of low wages. Some companies’ CSR initiatives can thus be characterised as ‘robbing Peter to pay Paul’. Companies should publish what they earn and what they pay out to the various stakeholders. Local communities in areas of exploration and exploitation live in a kind of double bind, unable to move forward in the right direction owing to a lack of support free of ulterior motives and to a lack of independent funding. Consequently, the population finds itself abandoned to its fate at the end of the exploration or exploitation phase following demobilisation, with absolutely no recourse.

Laying the foundations for sustainable dialogue: three golden rules

A Central African trade union official(2)summed up the situation as follows: ‘In countries in the North, public authorities are like VIPs to multinationals. But in Africa, governments are the servants of public and private multinationals, and financial institutions.’ After offering particularly favourable conditions to multinationals, the authorities lash out at protesters often under false pretenses. These protesters are subject to severe penalties when they persist in challenging the course of industrial operations. Under such conditions, the possibility of social dialogue, which is, of course, necessary for ensuring the proper functioning of the corporate community and the emergence of a peaceful society, soon evaporates. Companies should not see independent stakeholders as opponents, but as their main partners. Economically speaking, competition creates innovation. From a social point of view, critics are a source of enrichment when it comes to initiatives. An operator needs to be able to establish a dialogue with credible partners in a solid framework. The absence of such conditions, however, does not justify ‘playing the game’ with corrupt authorities. The first step is therefore to precisely define the meaning and context of social dialogue through proper channels before focusing on the various topics of public interest(3) or ‘issues’.

Logically, involvement in these various issues brings with it a financial cost to the operator, representing an increase in the taxes it pays and/or a decrease in its profit margins. Before launching operations, an operator must have an idea of ​​the financial benefits that each beneficiary will be able to enjoy and of their distribution over time. For operations currently under way, it is important that assessments be carried out before sites are closed. Five main stakeholders fall into the category of beneficiary: financial institutions, shareholders, public authorities, workers and local communities. Local communities are the most difficult to define. It is therefore crucial to define the territorial limits of the influence the extractive project has (e.g. administrative, land and/or cultural) and to identify ‘locals’ on the basis of criteria such as natives, inhabitants or people hailing from the area (including the diaspora). The second step is to map out, and consult with, the stakeholders, especially independent civil society and local communities near the sites, on the content on which key issues should be based.

A summary of public consultations results in the emergence of five key issues: agreements and regulations, environmental and land footprints, recruitment, local content and local development. Multinationals claim to enforce the same procedures at all their subsidiaries. Yet these issues are not treated in the same way in all countries. Unlike HSEQ(4) and new technologies, social benefits and environmental standards in Western countries are not exportable. The third point is to propose a course of action to address the various issues in the interests of all the stakeholders.

What responses are there to the issues?

Speeches and documents (e.g. press releases, memos, codes of conduct and recommendations from workshops) are classified as ‘soft law’ and are in no way binding. Only signed agreements and regulations, or ‘hard law’, are binding and carry with them the threat of sanctions. Soft and hard law function similarly to curative and preventive remedies in medicine. Hard law continues to be the best investment when it comes to laying the groundwork for the future and for quality conditions. Global geopolitics shows that the stronger a country’s binding legal framework to which social dialogue has contributed, the more secure investments are and the higher the population’s standard of living. It is by imposing binding rules and by acquiring a means to actually monitor their application that future social conflicts – which can, on occasion, escalate into extremely violent conflicts – can be avoided. Companies should understand that securing a very ‘lucrative’ agreement in no way guarantees the security of their operations or their investments. How many more deaths and what level of misery will it take before we call into question such unjust agreements?

Ecological footprints are very complex and vary from one place to another. As regards the environment, scientists must be free to carry out their impact assessments and restoration measures unimpeded in the interest of the planet and of local communities. With respect to the land, one must take into account its multidimensional values (e.g. cultural, religious and economic). It would be a mistake to reduce the land to a mere monetary value and ignore the role it plays in production and its social values. Appropriating land from the vulnerable cannot be settled simply by compensation which the beneficiaries quickly squander only to find themselves destitute and forced to beg to survive, fully aware that they have been robbed. Seeing the wealth generated by the property which was once their own, the population eventually turns from frustration to confrontation. Monetary compensation for expropriation can in no way replace the value of the work carried out on this lost land. In the expropriation of land, an operator’s technical modelling team must take into consideration the recommendations made by local communities reiterated by the ‘permit men’.

Wages still represent the ‘only’ direct, regular income accessible to locals where the exploitation of their property is concerned. Yet today’s capital-intensive mining and oil industries require a highly skilled, healthy workforce and do little to create jobs. It is imperative that the indecently low wages paid to nationals lacking a frame of reference should therefore be revised. Indeed, we are witnessing the breakdown of the natural link between productivity, product prices and wages. The current trend of subcontracting only encourages casual labour. An operator is a ‘de facto employer’, one which employs independent contractors, and is increasingly reluctant to assume the role of a ‘de jure employer’ so as to disassociate itself from social benefits.

To those regions left behind by the modern economy, the presence of a major operator opens a door to the market economy. This is why operators must increase the percentage of local content, providing a decent wage to locals who cannot be recruited. Local purchases must benefit companies in which the majority of shares should be held by nationals. It is time we did away with the prejudices, inherited from the colonial period, that locals are unable to become major entrepreneurs in their own right.

80% of revenues generated by the exploitation of natural resources will have to be used to meet the multiple needs of current development. But the rest should be earmarked for future generations by setting up a trust fund, as is already the case in certain developed countries. Money is a prerequiste for development, but it must be used in an effective, efficient manner. Industrial projects should be integrated into the socio-economic fabric in tandem with a real increase in the locals’ standard of living. Norway proved that oil and development can go hand in hand. Other countries in the southern hemisphere have successfully demystified the natural resource curse. The success of all these countries is linked to a single point, one which is difficult to perceive: it is the existence of a minimum threshold of highly empowered individuals with an empathy towards local communities where sites are located.

A company must focus on its business in order to ensure improved productivity to meet the reasonable interests of shareholders and to pay a decent wage to the other beneficiaries. Also necessary is a minimum threshold of independent men and women working constantly to ensure an operation that wisely allows this ‘blessing’ to be transformed into ‘well-being’. Feedback on positive experiences in human history and throughout the world will serve as examples. The natural resource curse is not inevitable; it is, after all, not the result of a natural disaster, but of human choices. Those local communities near sites in vulnerable countries are waiting for new alternatives leading in the right direction.